Syria Looks to Reform Economy - 2004-02-26

The Syrian government has implemented reforms aimed at integrating its economy into the global market. Business leaders say more needs to be done quickly to keep pace with the competition, but they also voice concerns that regional instability fueled by the war in Iraq and a faltering peace process complicates their efforts.

Economic reform has become a buzzword in markets across the Middle East, and Syria has joined the chorus with major reforms of its own.

Syrian business leaders welcome recent measures that now allow private banks to operate in Syria. The pro-business climate is improving almost daily, and new rules are being implemented to attract foreign investment.

Chamber of Commerce President Rateb Shallah says the new attitude helps make Syria more attractive as a destination for investment. "Syria is a very promising country. We have a good economic base. We do not suffer from foreign debt," he says. "We have diversified economy, and there is no reason for Syria not to be a leader for attracting investment in the future."

But that is where reality steps in. Economic growth is less than half the impressive seven-percent annual rate of 30 years ago. Syria's foreign currency reserves have dwindled with the drop in oil revenues. One out of five workers cannot find a job.

The cumbersome centralized economy has not been able to meet the challenge. Economist Nabil Sukkar blames the government, which, he says, is slow to change its ways. "There is still hesitation to move toward a market economy, because there are some fears of what a market economy is," he says. "There is not an understanding of the workings of a market economy."

Mr. Sukkar is a former senior World Bank economist and now runs the Syrian Consulting Bureau for Development and Investment. He says Syria must reform the way it does business to compete for a share of the global market. "Unless we really put our act together and move in a very decisive way on economic reform, I think we will fall back even more. "

Syria is negotiating with the European Union for a special association agreement, hoping to boost trade and investment. Mr. Sukkar says that deal will present a major challenge. "To be able to compete in the European market, or compete with the European products, which will be coming to our markets duty free, is going to be a challenge," he says. "We already have the Arab Free Trade Area, which is in effect now. And we are having difficulty competing with products coming to us from the Gulf markets, Lebanese and Egyptian markets."

But Mr. Sukkar says the EU deal is a potential catalyst for reform. The European Union is Syria's largest trading partner, and wields economic and political influence.

In contrast, Mr. Sukkar does not expect much impact from U.S. sanctions, which Washington has threatened to impose, if Syria does not halt its support for terrorists, or its alleged weapons of mass destruction program. "Overall, I do not think it will affect us significantly. It could have a psychological effect," he says. "Some companies do not want to deal with Syria, because they want to be on good terms with the United States."

What worries Syrian businessmen more is the instability of the Middle East - the uncertain situation in Iraq, waves of terrorist bombings, the stalled peace process between Israel and the Palestinians. Industrialist Rate Shallah says big investors are reluctant to invest in the region.

"It is not easy to live in this atmosphere. Though internally, Syria enjoys a record of stability and security and ease, but this does not belittle the important effects of surrounding conditions in the region," says Mr. Shallah. "Just think, in other countries, where does investment come, if people are not yet certain about the outcome, or the next step in the political situation?"

He says that, in the end, Syria must do more for itself. Syria, he says, must do a better job of promoting its internal stability, which he calls a major asset, and improve competitiveness. "Everyone is now aware and sold on the idea that reform and modernization and upgrading our performance is a necessity."

Otherwise, Mr. Shallah says, Syria risks falling behind in the race for its share of the market.